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223_Hwk_10_Solutions

# 223_Hwk_10_Solutions - HA 223 Fall 2006 Homework 10...

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HA 223 – Fall 2006 – Homework 10 – Solution M10–2 . Principal \$800,000 × 0.6806 = \$544,480 Interest \$ 64,000 × 3.9927 = 255,533 Issue Price = \$800,013* *Issue price should be exactly \$800,000. The \$13 difference is the result of rounding the present value factors at four digits. M10–3 . Principal \$300,000 × 0.3220 = \$ 96,600 Interest \$ 30,000 × 5.6502 = 169,506 Issue Price = \$266,106 M10–4. January 1, 2006: Cash (+A) ............................................................................... 753,000 Discount on Bonds Payable (+XL, -L) .................................... 47,000 Bonds Payable (+L) ........................................................... 800,000 December 31, 2006: Bond Interest Expense (+E, -SE) (\$753,000 × 11%) ........... 82,830 Discount on Bonds Payable (-XL, +L) ................................ 2,830 Cash (+A) (\$800,000 × 10%) ............................................ 80,000 M10–5. January 1, 2006: Cash (+A) ............................................................................... 580,000 Discount on Bonds Payable (+XL, -L) .................................... 20,000 Bonds Payable (+L) ............................................................ 600,000 December 31, 2006: Bond Interest Expense (+E, -SE) ........................................... 62,000 Discount on Bonds Payable (-XL, +L) ................................ 2,000 Cash (-A) ............................................................................. 60,000 E10–2. The AT&T bonds have a coupon interest rate of 6.5%. If bonds with a \$10,000 face value were purchased, the issue price would be \$8,950 and they would provide a cash yield of 7.3%. A decline in value after issuance would have no impact on AT&T’s financial statements.

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E10–11. 1. Issue price: \$951. Stated rate, 9%; effective or yield rate, 11% (both were given).
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223_Hwk_10_Solutions - HA 223 Fall 2006 Homework 10...

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